Debt is a spiraling problem that grows upon itself. The more you owe, the more you’ll continue to owe, thanks to interest charges and fees.
Many households owe thousands of pounds in credit card debt alone. The high amount of money that people owe, combined with the fact that many credit cards have interest rates above 10 percent, result in many people feeling like its impossible to get their debt under control.
It’s time to break the cycle.
You can pay off your debt, but it will take some necessary changes in your life.
Debt comes from spending more money than you make, so the best way to stop piling up even more debt is to create a budget.
Make a list of necessary expenses such as rent, mortgage payments, or utility bills. Set limits on side expenses, like eating out at restaurants or going to the hair salon. Making a bare-bones budget allows you to throw all your extra money saved by budgeting at your debt.
Credit cards carry high interest rates and only people who don’t succumb to the temptation to overspend should carry them. If you owe a lot of money, stop using your cards right away. Carry cash instead and use it to buy the items you need throughout the day.
Making only the minimum payment on a high-interest credit card leads to you spending thousands of pounds of interest in the long run.
If you have a ?6,000 bill on a card with 15 percent interest, it will take you years to pay it off if you only make the minimum ?100 payment each month, along with a couple extra thousand pounds from the interest rate alone.
Responsible credit card owners pay off their bill each month. If you cannot do that, then at least pay more than the minimum payment.
Pick a debt payment method: debt snowball or debt stacking.
The “snowball” method focuses on paying off the card with the smallest amount of debt first, regardless of the interest rate, and then moving on to the card with the next-smallest amount. The “stacking” method focuses on paying off the card with the highest interest rate first, and then moving on the one with the second highest rate. Both methods work, so choose the one that seems best to you.
This option is not for everyone, but might work for you if your debt struggles are due to a job loss or an illness and your mortgage is for your primary residence.
Renegotiating with your lender allows you to pay a lower interest rate. How big of a difference can this make? Adjusting from 7 percent to 5 percent on a ?150,000 mortgage can mean savings of ?192 per month. That’s money that could go towards paying off your credit card debt.
If you can’t renegotiate your mortgage, refinancing is another option. It also allows you to refinance to a lower interest rate, but you also have to pay for closing costs. Considering closing costs can equal thousands of pounds, this might not be the best strategy unless you can refinance from a much higher rate into a lower one.
Once you finally pay off your credit card debt, start putting money aside in a savings account. This way you can plan for future purchases instead of going into debt to pay them off. Aim to have a savings account that covers at least three to six months of your living expenses in case of emergencies.
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